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Prospects for Meat Markets and Income in EU 2013-2023

18 February 2014

Beef production is expected to be running seven per cent lower in 2023, despite dairy quota termination and stabilising suckler cow numbers beef , says the European Commission.

The EU meat sector is expected to be supported by strong demand on the world market driven by favourable economic conditions. In Europe, prospects of improved economic growth should leave consumers with more disposable income allowing for a higher consumption of meat products.

In 2012, unfavourable weather in several parts of the world (drought in the US, Black Sea region and Eastern Europe) drove up grain, and consequently feed prices, which affected meat production and put pressure on margins despite meat prices reaching historical highs worldwide in 2012 and 2013. In the current outlook feed prices are expected to remain relatively high throughout the projection period, though significantly below 2012 levels. Projected meat prices are also to remain firm due to strong world demand and limited supply response.

Graph 3.1. Total meat consumption in retail weight (kg per capita)

EU meat demand: poultry meat to grow the fastest but at a slower pace than previously

Lower availabilities, higher meat prices and the ongoing economic downturn with high unemployment rates especially in the southern European countries meant that overall meat consumption contracted in 2012 and 2013 (-1.5 per cent from 2011), reaching its lowest level for the past 11 years (64.7 kg per capita)5 in 2013, as consumers turned to cheaper meats and cuts.

5 Consumption per capita is measured in retail weight. Coefficients to convert the carcass weight into retail weight are 0.7 for beef and veal, 0.78 for pig meat and 0.88 for poultry and sheep meat.

Consumption is expected to recover from 2014 as more meat comes in onto the market. By the end of the projection period, per capita consumption is expected to reach 66.1 kg, similar to the 2011 level (Graph 3.1). The recovery is moderate because more people are changing their food habits towards more fish and/or ’less meat’ in their diets.

Individuals typically consume around 10 kg more meat in the EU-15 than in the EU-N13, but this gap is expected to narrow slightly in the next few years, due mainly to faster growing poultry meat consumption in the new Member States. Current EU-15 and EU-N13 per capita consumption levels of pork, poultry and sheep meat are quite similar, but individuals in the EU-15 tend to eat far more beef: about 12 kg as against 4 kg in the EU-N13.

Graph 3.2 EU meat consumption in 2023 as compared with 2010-12 average (%)

Over the projection period, poultry meat is expected to remain the most dynamic product (thanks to its price, convenience and health considerations) and partially compensate for falling beef and sheep meat consumption. Poultry consumption is expected to increase both as a proportion of total meat consumption and in absolute terms (Graph 3.2.). Pork will remain Europe's favourite meat, while the consumption of beef and sheep meat is projected to drop in both in absolute and relative terms.

Beef and veal

Recent developments

A steady decline in EU cattle numbers from 2009 affected both suckler and dairy cow herds. This was not fully offset by higher average slaughter weights and beef and veal production declined, most sharply in 2012 (almost -4 per cent) and 2013 (-3 per cent).

In those two years, exports to third countries decreased from 2011's record level because of the lack of supply and protectionist measures introduced in Turkey and Russia which have increased duties on import from the EU or, simply, banned EU beef on animal health grounds6. Restrictions on trade for sanitary reasons are used by these countries to limit imports from the EU and they might introduce such restrictions also over the projection period. However, this possibility is not taken into account in these projections. Other destinations for EU live cattle are Lebanon and Algeria.

In 2012, EU meat imports decreased further because of Argentina's policy of limiting exports in a context of limited beef production, while imports from Brazil and Uruguay remained quite stable. Consequently, imports were 4.4 per cent lower (at 275 000 tonnes) in 2012 than in 2011 reaching their lowest level in the past decade and failing to make up for low domestic supply. In 2013, EU imports from third countries will grow by 10.6 per cent, with rising shipments from Brazil and Uruguay, while volumes from Argentina (despite some expected recovery in production) will contract further.

The scarce supply caused consumer prices to rise and put additional pressure on consumption. Following a 1 per cent decline in 2011, overall consumption dropped more significantly in 2012 (around 3 per cent year-on-year) and the trend continued in 2013 (almost -2 per cent); per capita consumption fell by around half a kilogram in two years (from 11.2 kg in 2011 to 10.7 kg in 2013).

6 In January 2013, Turkey decided to block the imports from the EU requesting sanitary certificates ensuring that animals are born and slaughtered in the same Member State. Russia introduced a ban on livestock products imports from several EU Member States complaining on the veterinary inspection system. Beef trade has been the most affected by this restriction.

Market outlook: production coming back after quota abolition

After many years of contraction in the EU cattle herd, 2012 marked a break in the trend, with a slight increase in dairy cow numbers as farmers started to recapitalise in view of the upcoming abolition of milk quota (see Chapter 4), and a stabilisation of suckler cow numbers. However, the increase in the dairy herd is not expected to last and already in 2013 the numbers are expected to decrease again, at first at a slower pace and then in line with recent trends.

The EU-15 suckler cows herd (notably concentrated in France, Spain, Ireland and the United Kingdom) is expected to remain stable over the projection period at around 12 million heads. Further to the end of the quota system, some mixed activity farmers may specialise more in dairy and decrease suckler cow herd. However, the firm beef meat prices projected in the medium term should provide sufficient incentives for beef farmers to take over these suckler cows.

Due mainly to developments in the dairy herd (which represents around 2/3 of beef production), beef production is projected to decline by around 7 per cent from the 2010-12 average to a low 7.6 million tonnes in 2023 (Graph 3.3).

Graph 3.3 EU beef market developments (million tonnes)

In the context of decreasing supply, exports will steadily shrink to 116 000 tonnes (less than 50 per cent of the exceptional 2010-12 average). A shift in key destinations seems likely:

Russia and Turkey are expected to import less from the EU due, respectively, to increased domestic production and lower demand (in addition to their recent trade measures – see above); while

demand from South Korea, the Middle East and Egypt could create new opportunities.

Import volumes in 2023 are expected to be higher than in 2012 although significantly lower than in 2005, when they still largely exceeded tariff rate quotas (Graph 3.4). Increased production in Brazil and Argentina, together with an expected strengthening of Uruguay's performance, will translate into higher imports into the European market (close to 400 000 tonnes). However, imports from South America are not expected to reach the record 2005-07 levels, because:

the price gap with the EU has closed somewhat;

South America is increasingly supplying other markets; and

with the good economic growth, consumption in South America has increased and less meat is available for export.

A possible increase of Brazilian exports in case of a slower economic growth and a devaluation of the real is analysed in Chapter 9. The present outlook does not take account of a possible increase in imports once the bilateral agreement with Canada enters into force.

Graph 3.4 EU beef imports developments ('000 tonnes)

As consumption remains closely tied to availability and price, its 2023 level is projected to fall by 5.7 per cent against the 2010-12 average, to a very low 10.5 kg per capita. This figure hides a continuing big gap between old and new Member States (EU-15: 12.2 kg; EU-N13: 3.8 kg).

Tight supply is expected to keep prices firm at 4 086 EUR/t in 2023 close to the record 2012 and 2013 levels (+16.1 per cent in 2023 as compared to the 2010-12 average). The price path, however, may not necessarily be as smooth as indicated here, given the uncertainties relating to crop yields and the macroeconomic environment (see Box 2.1). Each year, in 80 per cent of the simulations ran to depict the expected uncertainties, the price oscillates between the 10th and 90th percentiles presented in the graph.

Pig meat

Recent developments

Like the cattle herd, the pig herd has been decreasing since 2006 and stood at 147 million heads in 2012 (a reduction of 16 million heads or 10 per cent, in seven years), while breeding sow numbers fell even more steeply, by 19 per cent (3 million heads). The downward trend is explained by:

restructuring process in some of the most important producers;

increased productivity;

higher feed costs;

lower profitability in the sector; and

(more recently) the need to adapt to new welfare rules.

In spite of the decline in herd, carcass weight gains implied that meat production increased slightly in the period to 2011. However, the new welfare rules in place accelerated the decline in animal numbers (as reflected in the December 2011 and 2012 surveys) and inevitably led to shorter supply on the European market in 2012 and 2013 (by -2 per cent and -1.2 per cent, respectively).

Despite this, exports performed relatively well in 2012 and 2013, with higher volumes (around 2.2 million tonnes) shipped to Asia and the Far East countries in particular; Russia remained the top destination (more than 600 000 tonnes per year), with second place going to Japan (over 250 000 tonnes per year).

Supply shortages and high prices put pressure on consumption, which fell by 2.3 per cent in 2012 and 1.1 per cent in 2013. Per capita consumption fell significantly, from 32.1 kg (retail weight) in 2011 to 30.8 kg in 2013.

Market outlook: rebound in production as of 2015 to benefit from export opportunities

It is expected that the new welfare rules will force some less competitive farmers out of production and a higher proportion of pig meat will come from more productive farms. This is expected to boost production from 2014 onwards to 23.4 million tonnes by 2023 (+2.8 per cent against the 2010-12 average; Graph 3.6).

The increase will be kept at moderate levels by environmental constraints in some of the main producer countries (e.g. the Netherlands and some parts of France).

Graph 3.6 EU pig meat market development (million tonnes)

Exports7 are projected to increase by 2023 by 12.4 per cent against the 2010-12 average and 6.3 per cent against 2012 levels (Graph 3.7). The annual growth of 1 per cent for 2012-23 is substantially lower than the corresponding rate for 2001-11 (+6 per cent). This development should be driven by increased competition from the US and Brazil, where production is likely to increase over the projection period (by 18 per cent and 24 per cent by 2023 as compared with 2010-13 average).

Russia and China are expected to remain the main destinations for EU pig meat exports with a projected increase of the Chinese import demand. It is important to bear in mind that, if the Chinese authorities would lower their self-sufficiency objectives, the impact could be significantly higher imported quantities; for example, if in 2012, self-sufficiency objectives would have been 1 per cent lower, that could have implied additional pig meat imports of around 500 000 tonnes. On the other hand, higher domestic production thanks to generous subsidies in pig meat production might reduce import demand in Russia.

Over the projection period, consumption is expected to recover slowly from the very low 2013 level, reversing the decreasing trend observed since 2007 because of the economic crisis and the limited supply. However, even under this condition, consumption is still not expected to exceed 31.8 kg per capita by 2023, which would keept it below the 2011 level.

Tight supply and higher grain prices led pig meat prices in 2012 and the first part of 2013 well above their 2011 level (which was already a record); they subsequently fell somewhat in the second half of 2013 on the back of lower feed prices. Over the outlook period, EU pig meat prices should follow developments on the world market and could rise at the same pace as in the past decade to reach 2 100 EUR/t in 2023 (Graph 3.8).

However, uncertainties relating to crop yield and the macroeconomic environment could imply price fluctuation around their projected average level by up to 9 per cent with a consequent impact on EU export competitiveness and demand (Box 2.1).

Poultry meat

Recent developments

Poultry meat has partly made up for the reduced availability of beef and pig meat. Thanks to short rearing times and the fact that it is relatively easy to invest in the sector, poultry meat production has maintained its recent steady upward trend, though at a slower rate than before. Again, higher feed costs and the economic environment had a significant impact, reflected in slower growth in 2011-13.

In a context of growing world demand, EU exports grew substantially in 2010 (+24 per cent) and 2011 (+12 per cent). Nevertheless, respective export growth was much weaker in 2012 (+2 per cent) and 2013 (+1 per cent), as strong demand in some African countries (mainly South Africa and Benin) and the Middle East (Saudi Arabia) was offset by fewer shipments to Hong Kong and Russia (Graph 3.10). Lower export refunds in October 2012 and their complete removal in January 2013 for chicks and in July for frozen poultry carcasses seem not to have had a noticeable effect on exports.

2012 imports remained rather stable at around the same level as in the previous year, but increased by 3.4 per cent in 2013 in response to firm growth in domestic consumption. Higher imports from Thailand (for which a quota for salted raw poultry meat was opened in July 2012) compensated for the shortage of supply from Brazil (a result of production constraints and exporters focusing more on Asian markets).

Cautious spending in an uncertain economic environment saw consumption slowing down in 2011 and 2013 (unlike 2012, when consumption of other meat fell sharply). Per-capita consumption in both the EU-N13 and EU-15 is around 20–21 kg.

Market outlook: filling the gap left by other meats

The increase in poultry production is expected to be hindered by feed costs staying relatively high though below the record 2011 and 2012 levels. Poultry meat will remain the most dynamic meat and expand at a rate of 0.8 per cent per year in 2012-23. By 2023, production is expected to reach 13.6 million tonnes (Graph 3.9).

According to current projections, the dynamic import demand in the Middle East (especially Saudi Arabia) and China is expected to continue and should boost EU exports to 1.4 million tonnes in 2023 (15 per cent above the 2010-12 average). Exports are expected to grow by 120 000 tonnes as compared to 2012, with greater demand also from South Africa and Ghana. On the other hand, projected production increases in Russia will lead to a contraction in import demand there. EU imports should fluctuate around the tariff rate quota level (~800 000 tonnes).

Graph 3.9 EU poultry meat market developments (million tonnes)

Graph 3.10 EU poultry export developments ('000 tonnes)

In 2012 and 2013, poultry meat prices followed the same pattern as pig meat prices; after recording very high levels (2 000 EUR/t on average) in 2012 and during the summer months of 2013, they started to ease somewhat in the second half of the year as feed prices fell thanks to the availability of the new harvest. As feed prices are projected to stay high over the outlook period (albeit below the record levels of previous years), and domestic and export demand is on the rise, poultry prices are expected to recover steadily from a drop in 2014, and exceed the 2012 high by the end of the projection period (Graph 3.11). As explained in Box 2.1 price path development may not be as smooth as depicted in Graph 3.11.